Opinion
CIVIL ACTION NO. 08-10487-NG.
July 20, 2009
Dion M. Bregman Morgan, Lewis Bockius, (CA) Camino, Real Palo Alto, CA, representing Advanced Ion Beam Technology, Inc. Counter Claimant, Advanced Ion Beam Technology, Inc. Defendant.
Richard Goldenberg, Wilmer Cutler Pickering, Hale and Dorr LLP, Boston, MA, representing Alice W. Enge, Plaintiff, Elizabeth Dill Plaintiff.
Todd S. Holbrook, Morgan Lewis Bockius LLP, Boston, MA, representing Advanced Ion Beam Technology, Inc., Counter Claimant, Advanced Ion Beam Technology, Inc., Defendant.
Daniel Johnson, Jr., Morgan, Lewis Bockius LLP, Francisco, CA, representing Advanced Ion Beam Technology, Inc., Counter Claimant, Advanced Ion Beam Technology, Inc., Defendant.
Christopher G. Lim, Wilmer Cutler Pickering Hale and Dorr LLP (Bos), Boston, MA, representing Varian Semiconductor Equipment Associates, Inc. Plaintiff, Kenneth H. Purser Plaintiff, Norman L. Turner Plaintiff, Harald Enge, Plaintiff, Varian Semiconductor Equipment Associates, Inc. Counter Defendant, Kenneth H. Purser Counter Defendant, Norman L. Turner Counter Defendant, Harald Enge, Counter Defendant, Alice W. Enge Plaintiff, Elizabeth Dill Plaintiff, Varian Semiconductor Equipment Associates, Inc. Counter Defendant, Alice W. Enge Counter Defendant, Elizabeth Dill Counter Defendant, Harald Enge Counter Defendant, Kenneth H. Purser Counter Defendant, Norman L. Turner Counter Defendant.
Michael J. Lyons, Morgan, Lewis Bockius LLP, Palo Alto, CA, representing Advanced Ion Beam Technology, Inc., Counter Claimant, Advanced Ion Beam Technology, Inc., Defendant.
Richard W. O'Neill, Wilmer Hale LLP, Boston, MA, representing Varian Semiconductor Equipment Associates, Inc. Plaintiff, Kenneth H. Purser Plaintiff, Norman L. Turner Plaintiff, Harald Enge, Plaintiff, Alice W. Enge Plaintiff, Elizabeth Dill Plaintiff.
Tristan C. Snell, Wilmer Hale LLP, Boston, MA, representing Varian Semiconductor Equipment Associates, Inc. Plaintiff, Harald Enge Counter Defendant, Kenneth H. Purser Counter Defendant, Kenneth H. Purser Plaintiff, Norman L. Turner Counter Defendant, Norman L. Turner Plaintiff.
Wayne L. Stoner, Wilmer Hale LLP, Boston, MA, representing Varian Semiconductor Equipment Associates, Inc. Plaintiff, Kenneth H. Purser Plaintiff, Norman L. Turner Plaintiff, Harald Enge, Plaintiff, Alice W. Enge Plaintiff, Elizabeth Dill Plaintiff.
REPORT AND RECOMMENDATION ON PLAINTIFFS' MOTION TO DISMISS FIRST AMENDED COUNTERCLAIMS
I. INTRODUCTION
On March 25, 2008, the plaintiffs, Varian Semiconductor Equipment Associates, Inc. and the owners of U.S. Patent No. 7,301,156 ("the `156 Patent") (collectively "Varian"), brought this action against Advanced Ion Beam Technology, Inc. ("AIBT") alleging infringement of the `156 Patent entitled "Controlling the Characteristics of Implanter Ion-Beams." (Docket No. 1). AIBT responded by denying liability, asserting various affirmative defenses, and filing three counterclaims — for invalidity, non-infringement and unenforceability. After initial discovery was conducted, and for reasons which are in dispute, on November 25, 2008, Varian unilaterally granted AIBT a covenant not to sue on the `156 Patent, and moved to dismiss its claims and AIBT's three counterclaims. On March 5, 2009, following a dispute as to whether the dismissal should be with or without prejudice, the court allowed the parties' joint motion to dismiss, thereby dismissing plaintiffs' claims with prejudice pursuant to its covenant not to sue, and dismissing AIBT's three counterclaims with prejudice to the extent that those claims were directed to products that were the subject of Varian's covenant not to sue. (See Docket No. 62).
On December 24, 2008, after Varian had granted the covenant not to sue and while the motion to dismiss Varian's claims and the three counterclaims was pending, AIBT filed a First Amended Answer and First Amended Counterclaims. (Docket No. 45). In addition to reasserting its counterclaims for invalidity, non-infringement and unenforceability (Counts I-III), AIBT added five anti-trust counterclaims pursuant to the Sherman Act: Walker Process claims for monopolization and for attempted monopolization (Counts IV V), "sham litigation" claims for monopolization and attempted monopolization (Counts VI VII), and a claim for conspiracy to monopolize (Count VIII). The crux of these counterclaims is AIBT's contention that Varian engaged in anticompetitive conduct by filing a baseless patent infringement case.
"A Walker Process claim arises when a patentee baselessly institutes litigation to enforce a patent known to be unenforceable because the patent was procured by fraud." Novo Nordisk of N. Am., Inc. v. Genentech, Inc., 885 F. Supp.2d 522, 526 (S.D.N.Y. 1995) citing Walker Process Equip., Inc. v. Food Mach. Chem. Corp., 382 U.S. 172, 86 S. Ct. 347, 15 L. Ed. 2d 247 (1965).
This matter is presently before this court on Varian's motion to dismiss AIBT's counterclaims. (Docket No. 54). Therein, Varian contends that AIBT has failed to state any claims under the anti-trust laws. This court agrees and, for the reasons detailed herein, recommends to the District Judge to whom this case is assigned that Varian's motion to dismiss be ALLOWED. However, since the record does not establish that AIBT will not be able to allege a cause of action, this court recommends that the dismissal be without prejudice.
While the motion addresses all the counterclaims, as noted above, the original three counterclaims have been dismissed. Therefore, the only remaining counterclaims are the five antitrust counterclaims, and they are the only ones addressed herein.
II. STATEMENT OF FACTS
Unless otherwise indicated, the following facts are derived from AIBT's First Amended Counterclaims ("Counterclaim").
Varian manufactures and sells ion bean implantation devices, which are used to implant ions into a target, such as semiconductor wafers, or into materials on glass substrates used in LCD screens. (Counterclaim ¶¶ 98, 100). AIBT alleges, based on information and belief, that there are only three major competitors in the United States market competing for a billion dollars worth of sales of such devices. They consist of Varian, which controlled 64% of the market in 2007, another competitor that was withdrawing from the market, and a third competitor, which had suffered a substantial reduction in market share. (Id. ¶ 101). AIBT further alleges that it has developed a product called iPulsar that "uses a dual bar system to shape and steer the ion beams" and "offers the purest ion beam at the optimum beam current." (Id. ¶ 105). AIBT has offered its products for sale and "is currently in the process of completing customer qualification." (Id.). According to AIBT, "[i]on implantation equipment is very complicated to design and build and requires long lead times to obtain customer qualifications for use in fabrication facilities. There are also very few customers, most of whom are tied to their existing suppliers. This makes it difficult for new competitors to enter the market." (Id. ¶ 102).
The application that resulted in Varian's `156 Patent was filed on June 16, 2005, and the Patent was issued on November 27, 2007. (Id. ¶ 107). The `156 Patent Application was a continuation of the `702 Patent Application, filed on July 15, 2003, which claimed priority to the `322 Provisional Application, which had been filed on July 17, 2002. (Id.). AIBT alleges generally that "[o]n information and belief, since at least 2002 the Counterdefendant inventor owners were aware of material prior art affecting the patentability of the claims applied for" and "included false and misleading statements regarding known invalidating prior art in their 322 Provisional Application, filed on July 17, 2002," which were subsequently repeated. (Id. ¶ 108). Thus, AIBT alleges, the inventors of the `156 Patent "intentionally decided not to disclose their knowledge that certain inventions, including the dual bar configuration, were not patentable in light of known prior art." (Id.). The only specific identification of allegedly wrongful conduct pertaining to the patent prosecution is AIBT's allegation that "[o]n information and belief, the Counterdefendant inventor owners deliberately misled the PTO, by either failing to disclose material prior art or drawing the patent examiner's attention away from material aspects of the prior art, such as, for example, U.S. Patent No. 3,541,328, in violation of their duty of candor, good faith and honesty." (Id. ¶ 109). According to AIBT, "[h]ad the Counterdefendant inventor owners not misled the PTO about the prior art, the PTO would not have issued the 156 Patent with coverage that included the dual bar system." (Id. ¶ 111). Moreover, according to AIBT, Varian acquired the `156 Patent from its owners "in an effort to obtain blocking intellectual property rights in order to increase its dominant market share and stifle competition." (Id. ¶ 113).
AIBT further alleges that Varian brought its lawsuit against AIBT with knowledge of the fraud involved in obtaining the `156 Patent. (Id. ¶ 112). According to AIBT, the lawsuit was objectively baseless because Varian knew the `156 Patent was invalid, Varian knew that AIBT's products did not infringe, and Varian had failed to undertake an adequate infringement analysis before bringing suit. (Id. ¶ 116). The wrongful acts which form the basis of the counterclaims are described by AIBT as follows:
89. This action also concerns the anticompetitive and unlawful acts of the Counterdefendants to extend their monopoly in the market for ion implantation technology for implanting ions onto semiconductor wafers, including without limitation: intentionally misleading the PTO as to material prior art in pursuing the patent application that resulted in the 156 Patent[]; initiating a patent infringement action against AIBT when the Counterdefendants were aware of the fraud; and maintaining the patent infringement action against AIBT despite being confronted with evidence of their fraudulent conduct and using the lawsuit and the attendant awareness of customers and potential customers regarding same to prevent or deter potential customers from doing business with AIBT and stifle competition.
A major issue raised by the motion to dismiss is whether AIBT has alleged sufficient harm to maintain these anti-trust counterclaims. The relevant allegations are as follows:
117. This patent infringement action instituted by Counterdefen-dants is motivated by an intent to preserve or obtain a monopoly in the market for ion beam implantation devices and to impose anti-competitive injury on AIBT by excluding it from the relevant market for ion implantation equipment for implanting ions onto semicon-ductor wafers.
118. Counterdefendants' actions have caused and continue to cause injury to AIBT by subjecting AIBT to the costs and burdens of defending itself against a patent infringement action based on the fraudulently-procured and invalid 156 Patent.
119. AIBT is a start-up company and if Counterdefendants are successful in destroying AIBT's business through the Counterdefen-dants' improper infringement suit, co-counterdefendant Varian will preserve its existing monopoly position and/or gain even more monopoly power in the ion implanter market, effectively stifling competition.
120. Even though Counterdefendants' patent infringement action is objectively baseless in that no reasonable litigant could realistically expect to prevail, Counterdefendants are improperly using the litigation process as a competitive weapon against AIBT to put AIBT out of business and harm competition.
Despite the fact that these counterclaims were filed after Varian had moved to dismiss its lawsuit and had issued a covenant not to sue, those undisputed facts are not referenced in the Counterclaims.
Additional facts will be provided below where appropriate.
III. ANALYSIS
A. Motion to Dismiss Standard of Review
Motions to dismiss under Rule 12(b)(6) test the sufficiency of the pleadings. Thus, when confronted with a motion to dismiss, the Court accepts as true all well-pleaded facts and draws all reasonable inferences in favor of the non-moving party. Cooperman v. Individual, Inc., 171 F.3d 43, 46 (1st Cir. 1999). Dismissal is only appropriate if the complaint, so viewed, fails to allege a "plausible entitlement to relief." Rodriguez-Ortiz v. Margo Caribe, Inc., 490 F.3d 92, 95 (1st Cir. 2007) (quoting Bell Atl. Corp. V. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1967, 167 L. Ed. 2d 929 (2007)). "`[T]he issue is not whether the plaintiff will ultimately prevail, but whether that party is entitled to offer evidence to support its claims.'" Raytheon v. Cont'l Cas. Co., 123 F. Supp. 2d 22, 27 (D. Mass. 2000) (quoting Day v. Fallon Cmty. Health Plan, Inc., 917 F. Supp. 72, 75 (D. Mass. 1996)). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S. Ct. at 1959 (internal quotations and citations omitted).
"Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). Accordingly, "a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. However, courts "need not accept as true legal conclusions from the complaint or `naked assertions' devoid of `further factual enhancement.'" Maldonado v. Fontanes, Civ. No. 08-2211, 2009 WL 1547737, at *1, 3 (1st Cir. June 4, 2009) (citations omitted). Applying these principles to the instant case mandates the conclusion that the motion to dismiss should be allowed.
B. Standing to Maintain the Anti-Trust Counterclaims
As an initial matter, Varian contends that all of the anti-trust counterclaims should be dismissed because AIBT has failed to properly allege an anti-trust injury and therefore lacks standing. Specifically, Varian contends that AIBT's assertion that it incurred litigation costs in defending the allegedly baseless patent infringement suit is insufficient to confer anti-trust standing. For its part, AIBT argues that not only is the fact that it had to incur litigation costs alone sufficient to satisfy the standing requirement, but also its allegations of a broader injury to the market provide additional basis to confer standing. The question is admittedly a close one. See Bristol-Myers Squibb Co. v. Copley Pharm., Inc., 144 F. Supp. 2d 21, 23 (D. Mass. 2000) ("Courts are in conflict over whether defense costs constitute antitrust injury."), and cases cited. Nevertheless, this court concludes that given the fact that AIBT, and the market generally, had incurred any antitrust damages relating to Varian's litigation by the time the counterclaims were filed, AIBT's unspecified, generalized claims of harm, and its failure to identify how the Varian litigation affected either its own participation in the market or the market itself, render its pleading insufficient to allege an anti-trust injury. Therefore, this court recommends that the motion to dismiss be allowed.
"A private plaintiff has standing to bring an antitrust action if: (1) the plaintiff's business or property has been injured; (2) the defendant's conduct was the substantial cause of the injury; and (3) the injury is of the type the antitrust laws were intended to prevent. Establishing `antitrust injury' is essential to standing." Bristol-Myers Squibb Co. v. Copley Pharm., Inc., 144 F. Supp. 2d at 22 (internal citations omitted). "Anti-trust injury" is "injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be `the type of loss that the claimed violations . . . would be likely to cause.'"Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S. Ct. 690, 697-98, 50 L. Ed. 2d 701 (1977) (quoting Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 125, 89 S. Ct. 1562, 1577, 23 L. Ed. 2d 129 (1969)). Moreover, "a practice is not `anticompetitive' simply because it harms competitors. After all, almost all business activity, desirable and undesirable alike, seeks to advance a firm's fortunes at the expense of its competitors. Rather, a practice is `anticompetitive' only if it harms the competitive process. It harms that process when it obstructs the achievement of competition's basic goals — lower prices, better products, and more efficient production methods."Town of Concord, Mass. v. Boston Edison Co., 915 F.2d 17, 21-22 (1st Cir. 1990) (internal citations omitted).
Reading the counterclaims in the light most favorable to AIBT as this court must, apart from Varian's lawsuit there was no impediment to AIBT competing in the ion implantation equipment market. (See, e.g., Counterclaim ¶ 105). Consequently, this is not a case where external factors, such as regulatory requirements, impeded a party's entry into a market, and negated any harm that may have been caused by having to defend a meritless patent infringement action. See and compare, Bristol-Myers Squibb Co. v. Copley Pharm., Inc., 144 F. Supp. 2d at 24-25 (where defendant had not received tentative regulatory approval required for market entry, and first filer's market-exclusivity period had not expired, it was the statutory scheme, and not the plaintiff's lawsuit, that prevented the defendant from entering the market). Rather, this case squarely raises the issue whether the mere fact of being forced to incur litigation expenses, without any "allegation that said payment had any effect on competition, on the price, quantity or quality of [AIBT's] products, or prevented [AIBT] from pursuing its entry into the market" is sufficient to state a claim of anti-trust injury. See Brotech Corp. v. White Eagle Int'l Techs. Group, Inc., No. Civ. A. 03-232, 2004 WL 1427136, at *7 (E.D. Pa. June 21, 2004) (granting motion to dismiss anti-trust counterclaims where only injury alleged was the costs and expenses defendant had incurred and would continue to incur in defending lawsuit). This court concludes that AIBT's allegations are insufficient.
AIBT relies on two cases from the First Circuit, CVD, Inc. v. Raytheon Co., 769 F.2d 842, 858 (1st Cir. 1985), and Amgen, Inc. v. F. Hoffmann-La Roche, LTD., 480 F. Supp. 2d 462 (D. Mass. 2007), in support of its contention that the fact that a party has incurred legal expenses in defending against sham litigation constitutes antitrust injury, without more. While there may be language in these cases which supports this conclusion, an analysis of the facts establishes that neither case purports to negate the requirement that the harm caused by the litigation must be linked to an actual anticompetitive effect. Such a link is missing in the instant case.
In CVD, Inc. v. Raytheon, Raytheon threatened CVD with trade secret litigation, as a result of which CVD, a start-up company, was forced into a licensing agreement. After a trial, it was found that Raytheon knew it had no trade secrets but nevertheless asserted trade secrets in bad faith in order to restrain competition and monopolize the relevant market. CVD was awarded a declaratory judgment that the licensing agreement was void and unenforceable, and, as an element of anti-trust damages, the legal fees it had incurred in attempting to resolve Raytheon's bad faith claims. Such legal fees, the court found "reflect[ed] the anticompetitive effect of acts with an anticompetitive intent" and constituted "a proper element of antitrust damages." Id. at 858.
The court's summary of the evidence establishes that at trial there were facts to the effect that the payment of legal fees and the threatened trade secret litigation would have had an actual negative affect on competition. As the court held:
In effect, the evidence indicates that Raytheon gave [CVD] three choices: (1) defend a trade secrets infringement suit against Raytheon; (2) refrain from competing with Raytheon . . .; or (3) take a license from Raytheon for the use of alleged trade secrets. All of the choices would have had an adverse economic impact on [CVD], as well as an anticompetitive effect. Indeed, the first two alternatives would have been fatal to CVD's existence as a viable concern.Id. (emphasis added). Significantly, there was evidence from which the court concluded that "litigation with Raytheon would have proved ruinous to the newly formed corporation, andeffectively foreclosed competition in the relevant market." Id. at 851 (emphasis added).
Unlike the effect of continued litigation on CVD, in the instant case, there is obviously no potential harm to AIBT from continued litigation expenses, since any such continued costs would relate to AIBT's own anti-trust claims, and not to the dismissed Varian claims. Furthermore, it is undisputed that AIBT's litigation battle with Varian was not fatal to AIBT, and did not put AIBT out of business. AIBT's failure to link its payment of fees and costs to any "anticompetitive effect" defeats its claims.
Similarly, in Amgen the court did not relieve the defendant of the obligation to allege an anticompetitive effect. Rather, in his decision Judge Young found that Roche/Hoffmann had expressly "alleged that litigation expenses relating to the Walker Process counterclaim . . . constitute present antitrust injury." Amgen, 480 F. Supp. 2d at 468. In fact, a review of the anti-trust counterclaims in Amgen reveals extensive, detailed pleadings alleging the anticompetitive harm which had flowed from Amgen's wrongful conduct, including its allegedly sham litigation. (See Lim Decl. (Docket No. 61-2) at Ex. B, Counterclaim ¶¶ 58-63 ("Harm to patients, customers, Roche and competition")). This harm allegedly included "anticompetitively imposing higher costs on a new entrant, Roche," (¶ 59), and hindering Roche's ability to convince vulnerable customers to switch to Roche's product without penalty from Amgen. (¶ 62). Roche's counterclaims also detailed the effect of Amgen's publication of the litigation to potential customers, (¶ 67), as well as the fact that Amgen's litigation would injure consumers "who will be subject to reduced choice, retarded quality in terms of product attributes, and likely higher prices." (¶ 76). In short, the Amgen counterclaims were significantly more detailed than AIBT's counterclaims, and there is nothing in the First Circuit cases relied on by AIBT which relieves it of its obligation to link its litigation costs to anticompetitive effects.
Without belaboring the point, the other cases relied on by AIBT, in which courts found that legal fees incurred in defending sham litigation were "an injury which `flows' from the antitrust wrong," thereby entitling the prevailing party in an anti-trust suit to recover such fees and costs, also involved findings that the sham litigation had anticompetitive effects. See, e.g., Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282, 1296-97 (9th Cir. 1984) (Handgards presented evidence that Ethicon's patent suit impaired its ability to raise capital and remain competitive, and frightened customers away. It "also had an anticompetitive effect" in excluding Ethicon's only significant competitor, Handgards). Such a link is missing in the instant case.
In sum, "[a]n antitrust plaintiff must allege more than that the defendant's wrongful behavior directly damaged its business — it must also allege that the accused behavior stifled competition . . . While attorneys' fees may be recoverable as damages in a bad-faith prosecution suit, the plaintiff still needs to prove an `antitrust injury,' as that term has been defined by the Supreme Court." Chip-Mender, Inc. v. The Sherwin-Williams, Co., No. C 05-3465 PJH, 2006 WL 13058, at *6 (N.D. Cal. Jan. 3, 2006). Because AIBT has failed to do so, its anti-trust claims should be dismissed.
AIBT argues that it's allegations are sufficient because it has alleged additional harm beyond legal fees. However, other than allegations concerning Varian's intent to keep AIBT out of the market and increase Varian's market share, AIBT has not alleged any specific facts identifying the harm it has suffered. (See Counterclaims ¶¶ 89, 104-06). Thus, there are no factual allegations concerning how Varian's claims have actually impacted AIBT's business or how the lawsuit has actually affected the marketplace. Absent allegations sufficient to establish the existence of anti-trust injury, AIBT's antitrust counterclaims should be dismissed.
C. Failure to Plead Fraud with Particularity
Even assuming that AIBT is found to have sufficiently alleged an anti-trust injury, this court still recommends that the motion to dismiss the anti-trust counterclaims be allowed. As detailed herein, the counterclaims fail to allege fraud with sufficient particularity to withstand a motion to dismiss.
Fraud in obtaining a United States patent is a classical ground of invalidity or unenforceability of the patent. In Walker Process, 382 U.S. 172, 86 S.Ct. 347, 147 USPQ 404 the Court established that antitrust liability under section 2 of the Sherman Act may arise when a patent has been procured by knowing and willful fraud, the patentee has market power in the relevant market, and has used its fraudulently obtained patent to restrain competition.C.R. Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1367 (Fed. Cir. 1998). Accordingly, "[a] patentee who brings an infringement suit may be subject to antitrust liability for the anti-competitive effects of that suit if the alleged infringer (the antitrust plaintiff) proves (1) that the asserted patent was obtained through knowing and willful fraud within the meaning of Walker Process . . ., or (2) that the infringement suit was `a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationship of a competitor[.]'" Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998) (quoting Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127, 144, 81 S.Ct. 523, 533, 5 L.Ed.2d 464 (1961)).
As neither party addressed the "sham" claim separately, this court will not either. The arguments relating to the dismissal of the fraud claim control the sham claim as well.
"The first barrier for a Walker Process claimant to clear is the requirement that the patent be obtained through actual fraud upon the PTO." Dippin' Dots, Inc. v. Mosey, 476 F.3d 1337, 1346 (Fed. Cir. 2007). Moreover, in order to prevail on a Walker Process claim, "a claimant must make higher threshold showings of both materiality and intent than are required to show inequitable conduct." Id. Thus,
[as a]pplied to patent prosecution, fraud requires (1) a false representation or deliberate omission of a fact material to patentability, (2) made with the intent to deceive the patent examiner, (3) on which the examiner justifiably relied in granting the patent, and (4) but for which misrepresentation or deliberate omission the patent would not have been granted.C.R. Bard, Inc., 157 F.3d at 1364. Finally, Walker Process allegations, like all fraud-based claims, must satisfy the heightened pleading requirements of Fed.R.Civ.P. 9(b).MedImmune, Inc. v. Genentech, Inc., 427 F.3d 958, 967 (Fed. Cir. 2005), rev'd on other grounds, 549 U.S. 118, 127 S. Ct. 764, 166 L.Ed.2d 604 (2007). "Rule 9(b) requires that `(i)n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.' This standard means that a complaint must specify the time, place, and content of an alleged false representation." U.S. ex Rel. Gagne v. City of Worcester, 565 F.3d 40, 45 (1st Cir. 2009) (internal quotations omitted). In addition, "Rule 9(b) requires not only specifying the false statements and by whom they were made but also identifying the basis for inferring scienter." North American Catholic Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009). Furthermore, in cases alleging a failure to disclose information to the PTO, "Walker Process and FRCP 9(b) require" that the claimant "identify with particularity the reference or group of references that, but for their omission from [the patentee's] patent applications, the PTO would not have granted the applications." Netflix, Inc. v. Blockbuster, Inc., No. C 06-02361-WHA, 2006 WL 2458717, *4 (N.D. Cal. August 22, 2006). Applying these principles to the instant case compels the conclusion that AIBT's pleadings are insufficient.
AIBT relies on ¶¶ 73-76 and 108-11 of its First Amended Answer and Counter-claims to support its contention that its "counterclaims sufficiently allege the elements of Walker Process fraud, including a false representation and material omission, materiality of that representation and omission, intent, and reliance[.]" (Opposition (Docket No. 59) at 13). These allegations provide as follows:
73. On information and belief, since at least 2002, Applicants were [sic] of material prior art affecting the patentability of the claims in the 156 Patent, namely, U.S. Patent No. 3,541,328 ("the Enge `328 patent) and misled the PTO regarding same. In particular, the Applicants were aware of the Enge `328 Patent during their application process as is evident by its mention in the specification of the 156 Patent at column 3 lines 33-41.
74 Applicants misrepresented the contents and scope of the Enge `328 Patent in the specification of the 156 Patent.
75. The Enge `328 Patent was and remains material to the patentability of the 156 Patent.
76. Applicants' intentional and deliberate misrepresentation of the contents and scope of the Enge `328 Patent, allowed Applicants to fraudulently obtain issuance of the 156 Patent.
* * *
108. On information and belief, since at least 2002 the Counter-defendant inventor owners were aware of material prior art affecting the patentability of the claims applied for. The Counterdefendant inventor owners included false and misleading statements regarding known invalidating prior art in their 322 Provisional Application, filed on July 17, 2002. The Counterdefendant inventor owners repeated these same false and misleading statements in their 702 Patent Application, filed on July 15, 2003, as well as in their continuation application filed on June 16, 2005. Moreover, during the prosecution of the 702 Patent Application and the continuation application which resulted in the 156 Patent, the inventors intentionally decided not to disclose their knowledge that certain inventions, including the dual bar configuration, were not patentable in light of known prior art.
109. On information and belief, the Counterdefendant inventor owners deliberately misled the PTO, by either failing to disclose material prior art and or drawing the patent examiner's attention away from material aspects of the prior art, such as, for example, U.S. Patent No. 3,541,328, in violation of their duty of candor, good faith and honesty.
110. The patent examiner reasonably relied on the Counterdefen-dant inventor owners' misrepresentations.
111. Had the Counterdefendant inventor owners not misled the PTO about the prior art, the PTO would not have issued the 156 Patent with coverage that included the dual bar system.
To the extent that the allegations are made on information and belief, the pleadings are subject to the additional requirement that "the complaint set forth the facts on which the belief is founded." See U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 226 (1st Cir. 2004) (internal punctuation and citation omitted).
The only misrepresentation or omission that is plead with any specificity is Varian's alleged failure to disclose some (unidentified) information about the `328 Enge patent. It is undisputed that the `328 patent was, in fact, disclosed in the summary of the invention section of the `156 patent at col. 3, ll. 33 et seq. (See ¶ 73 quoted above). AIBT has failed to assert any facts to establish either that Varian was obligated to disclose anything else about the patent, or to show that Varian misrepresented any information about the patent so as to intentionally defraud the PTO. See Mentor H/S, Inc. v. Medical Device Alliance, Inc., 244 F.3d 1365, 1378 (Fed. Cir. 2001) (where the examiner had an article describing a prior art device, and there was no evidence that applicant misrepresented the device, the applicant was not obligated to disclose to the PTO an inventor's opinions regarding a prior art device; therefore there was no basis for finding inequitable conduct based on a failure to disclose). "[AIBT] has provided no support for the proposition that a patent holder who discloses a reference to the PTO can be found liable for Walker Process fraud solely based on an alleged failure to bring every detail of the disclosed reference to the examiner's attention." Chip-Mender, Inc. v. The Sherwin-Williams Co., No. 05-3465 PJH, 2006 WL 13058, at *7 (N.D. Cal. Jan. 3, 2006). Consequently, the allegations of the counterclaim are insufficient to state a claim of Walker Process fraud.
The cases relied on by AIBT do not compel a different result. Thus, in Semiconductor Energy Lab. Co. v. Samsung Electronics Co., 204 F.3d 1368 (Fed. Cir. 2000), the applicant submitted a 20 page document in Japanese, with a one-page partial translation which "misdirect[ed] the examiner's attention from the reference's relevant teaching" and "left the examiner with the impression that the examiner did not need to conduct any further translation or investigation." Id. at 1377. As a result, the court held, the applicant "deliberately deceived the examiner into thinking that the [prior art] reference was less relevant than it really was, and constructively withheld the reference from the PTO." Id. In eSpeed, Inc. v. BrokerTec USA, 480 F.3d 1129 (Fed. Cir. 2007), the court found that there was an intent to deceive the PTO where the applicant had filed a declaration, which obscured teachings that could have been found only "by digging through the 1139 pages of exhibits" and contained deceptive and "outright false" statements. Id. at 1138. In the instant case, AIBT has not detailed any such misconduct on the part of Varian. Absent any specificity as to the alleged wrongful conduct, including any details as to what information was allegedly wrongfully withheld, the Counterclaim fails to plead fraud with particularity and should be dismissed. See Applera Corp. v. Michigan Diagnostics, LLC, 594 F. Supp. 2d 150, 163 (D. Mass. 2009) (Walker Process fraud counterclaim dismissed due to failure either to identify the information that had allegedly been withheld from the patent office, or to identify the disclosures that allegedly should have been made).
Finally in Hydril Co., LP v. Grant Prideco LP, 474 F.3d 1344 (Fed. Cir. 2007), the complaint specified the prior art which was allegedly concealed, and alleged that the applicant's "own prior sales of covered technology" had not been disclosed. Id. at 1347, 1349. Here, in contrast, the only specific information that Varian allegedly concealed from the PTO related to the `328 patent. However, as AIBT's own allegations reveal, the existence of that patent had in fact been disclosed.
D. Conspiracy to Monopolize
In its final counterclaim for conspiracy to monopolize, AIBT alleges that "Counterdefendants have conspired with one another in a deliberate effort to further Varian's monopoly power in the relevant market, exclude AIBT from the relevant market, and stifle competition. The acts alleged above constitute overt acts in furtherance of the conspiracy." (Counterclaims ¶ 148). Even assuming that AIBT had sufficiently alleged an anti-trust injury to establish standing to maintain this claim, to prevail on a claim of conspiracy to monopolize, AIBT would need to prove "(1) concerted action; (2) overt acts in furtherance of the conspiracy; and (3) specific intent to monopolize." Boston Scientific Corp. v. Schneider (Europe) AG, 983 F. Supp. 245, 268 (D. Mass. 1997). As detailed herein, the allegations are too general to satisfy the elements of such a claim.
In support of its contention that it has sufficiently alleged a conspiracy to monopolize, AIBT describes its pleadings as follows:
Specifically, AIBT alleges that "the Counterdefendant inventor owners entered into a technology license agreement with Counterdefendant Varian," and despite knowledge "of the fraud perpetrated by Counterdefendant inventor owners on the PTO," "Varian acquired the 156 Patent in an effort to obtain blocking intellectual property rights in order to increase its dominant market share and stifle competition." First Amended Answer and Counterclaims ¶¶ 113-14. AIBT further alleges that, "[d]espite Counterdefendants' knowledge that the 156 Patent was procured through fraud and is invalid, they filed and continue to maintain this patent infringement action against AIBT asserting the invalid 156 Patent," and "[a]s a result of this agreement, all counterdefendants benefitted from the scheme to keep AIBT out of the ion implantation market, in the form of increased royalty revenues and profits," Id. at ¶ 114-15. Finally, AIBT alleges "Counterdefendants have conspired with one another in a deliberate effort to further Varian's monopoly power in the relevant market, exclude AIBT from the relevant market, and stifle competition." Id. at ¶ 148.
(Opposition (Docket No. 59) at 18). Notably absent from the allegations are any facts, as opposed to conclusory statements, indicating that the inventors and Varian entered into any agreement with the specific intent to monopolize the market. At most, the allegations are that these parties entered into a licensing agreement for the `156 patent. However, the fact that these parties entered into a licensing agreement, without more, does not equate to engaging in a conspiracy with the specific intent to monopolize.See Standfacts Credit Services, Inc. v. Experian Info. Solutions, Inc., 405 F. Supp. 2d 1141, 1152-53 (C.D. Ca. 2005) (failure "to allege a specific intent by Defendants to empower one of them with monopoly power" requires dismissal of claim for conspiracy to monopolize). AIBT has not alleged any facts to establish, as it must, that the counterdefendants shared "a conscious commitment to a common scheme designed to achieve an unlawful objective." Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 764, 104 S. Ct. 1464, 1471, 79 L. Ed.2d 775 (1984) (internal quotations omitted). Therefore, it has failed to state a claim for conspiracy to monopolize.
Finally, AIBT has provided no support for its contention that the fact that all the named defendants have joined in this lawsuit is evidence, in and of itself, of a conspiracy. Under AIBT's theory, there would be no need for any specific agreement to monopolize. As detailed above, this is inconsistent with the applicable law. Moreover, in light of the fact that this court has concluded that AIBT has failed to establish any anti-competitive injury resulting from the mere filing of this lawsuit, it would be inappropriate to find liability on the part of the counterdefendants simply because they have joined in this litigation. Since AIBT has failed to allege sufficient facts to establish that there was an agreement among the counterdefendants with the specific intent to monopolize the market, the conspiracy counterclaim should be dismissed.